Blog Stats

Posts Tagged ‘Adam Smith’

Yesterday, Paul Rosenberg published an intriguing situationist piece at Open Leftabout the context and meaning of Adam Smith’s “invisible hand.” Here are some excerpts.

* * *

What if Adam Smith’s “invisible hand” argument doesn’t mean what we think it means? What if it doesn’t mean that everything else but the “free market” can and should be ignored? What if if Smith actually depended on social and historical context in order to make his argument in the first place? What if it was an argument deeply dependent on what . . . The Situationist blog calls “the situation”?

In fact, that’s exactly what happened!

Recently, Berkeley economist Brad DeLong posted

“Yet Another Note on Adam Smith’s ‘Invisible Hand': What It Is and What It Is Not”, in which he points out that the phrase “invisible hand” only occurs once in the whole of Adam Smith’s The Wealth of Nations. He then quotes a good-enough chunk of text to give the full context in which the phase occurs-an argument that merchants prefer to ship goods through their home port, even though it costs more (even needlessly unloading cargo), and thus produce much the same result as mercantilism in promoting domestic economic activity.

* * *

It is within this context-the argument above-that Smith writes, “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

* * *

In this passage, Smith is overtly talking like a behavioral economist, rather than a more orthodox “rational actor” or related sort of practitioner. However, there’s an even deeper intellectual departure here, since his entire argument is based on a particular set of social institutions, expectations, past experiences and resultant practices, all of which contribute to his particular predilections that silently shape what is rational to him.